Access To Banking Services For Lower Income Consumers Dwindles As Wealth Gap Grows
(NEW YORK) MintPress — One week after the Democratic National Convention, a slew of new data is taking some of the shine off of the self-congratulatory speeches and showing that even if the Obama administration’s economic policies are on the right track, there is a long way to go before it can claim Americans are better off than they were four years ago.
A Census Bureau report released on Wednesday for 2011 shows that the official poverty rate — defined as an annual income of $23,021 or less for a family of four — is at 15 percent. That is basically unchanged from 1993 and the highest since 1983.
By total numbers, roughly 46.2 million people remained below the poverty line, unchanged from 2010. That figure was the highest in the more than half a century when records were kept.
Bruce D. Meyer, an economist at the University of Chicago, called the numbers disappointing and said they were a sign of ongoing problems in the labor market even with recent declines in unemployment.
“The drop in the unemployment rate has been due in significant part to workers leaving the labor force because they are discouraged, back in school, taking care of family or other reasons,” he said.
It gets worse. Median incomes declined yet again. The numbers show that the real median household income in 2011 was $50,054, a 1.5 percent drop from 2010 and an 8.1 percent drop from 2007, the pre-recession peak. This also represented an 8.9 percent drop from 1999, the all-time peak. That means that typical households have lost a decade in terms of stagnant incomes.
Adding further insult to injury, income inequality was up 1.6 percent in 2011 from 2010. The top 20 percent saw their income share rise 1.6 percent to 51.1 percent of the national pie, while the income share for the top 5 percent rose 4.9 percent, to 22.3 percent. The broad middle saw its share of national income drop from 38 percent to 37.3 percent.
All in all, not very good news for the 99 percent.
Aside from financial woes making it more difficult for average Americans to afford basic necessities, they also make it harder for them to take advantage of essential services such as banking.
A study by the Federal Deposit Insurance Corp. (FDIC), which partnered with the Census Bureau to conduct the survey and which also released its findings on Wednesday, showed that more than 1 in 4 households — 28.3 percent — are either unbanked, meaning they lack any kind of deposit account at an insured institution and have to rely on alternative financial services (AFS), or underbanked, which means they hold a bank account but also rely on AFS providers, cash or other financial arrangements.
According to the FDIC, the use of AFS is more extensive in the U.S. than in many other developed countries because the major banks in the U.S. are less willing to lend to people with marginal credit ratings or without the required identification.
A report from SNL Financial in April revealed that banks have closed dozens of branches in neighborhoods with a median household income of $25,000 or less since 2007, shifting resources to areas where the median income is $100,000 or more.
Millions of Americans are also unable to pay overdraft charges or minimum-balance fees. In 2011, the median overdraft fee was $29. According to Time’s Martha C. White, Americans forked over a collective $29.5 billion in overdraft charges for the year.
“Banks need to have pricing and practices that consumers can trust and allow them to build wealth and have economic mobility,” said Deborah Goldstein, chief operating officer at the Center for Responsible Lending (CRL). “If the account fees will leave them worse off, then it’s going to be a challenge for people to use banking services.
The FDIC survey found that the proportion of unbanked households increased slightly from the last survey in 2009 to 8.2 percent. The estimated 0.6 percentage point rise represents an additional 821,000 households. That means that roughly 17 million adults are without a checking or savings account.
The 2011 underbanked rate, 20.1 percent, is also higher than the 2009 rate of 18.2 percent, meaning 51 million adults have a bank account but resort to things like pawn shops and payday lenders.
Bailing out the masses
John Taylor, the chief executive of the National Community Reinvestment Coalition (NCRC), a non profit association of more than 600 community-based organizations, has argued that banks could make up some of the costs of managing consumer accounts increasing the volume of new accounts.
“A part of changing the condition of unbanked people is keeping them away from predatory lenders who keep them mired in debt,” he maintained. “One of the reasons you had all of these mortgage companies preying on low-income communities is because there were no options.”
They are also cut off from credit to buy a car or pay for an education.
Although Congress passed the Community Reinvestment Act in 1977 to address the shortage of credit available to low-and moderate-income neighborhoods, consumer advocates say that regulation has fallen short.
As the CRL’s Deborah Goldstein explained, “The (act) has had a significant impact over the last 30 years, but did not contemplate some of the new abuses that we’re seeing and the way banking has changed.”
The new consumer finance watchdog, the Consumer Financial Protection Bureau (CFPB) for its part does review compliance with federal laws such as the Fair Credit Act.
The CFPB was set up under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which brought the most significant changes to financial regulation in the country since the reforms that followed the Great Depression.
The agency has jurisdiction over non-bank institutions and says it plans to seek out predatory practices. Earlier this year, it moved to bring debt collectors and the credit rating industry under federal supervision for the first time.
But there is an ongoing dispute over the CFPB’s director, Richard Cordray. His nomination by Obama was blocked by Republicans in Congress who have criticized the agency from the start as an unnecessary regulation.
The president then used his executive power while the Senate was in recess in January to appoint Cordray as director through the end of 2013. There is still a possibility the appointment could be challenged in court.
And when it comes to providing greater access to banking services, Cordray is also facing a steadfast opponent in the industry.
“There has to be a recognition that there are costs to providing accounts and those costs have to be covered,” said Nessa Feddis, vice president and general counsel at the American Bankers Association.
“You can’t take a losing account and make it up bulk. You’re not going to spend money to lose money.”
Thus continues the vicious cycle of economic hardship for the vast majority of Americans.
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